Question
Dominant Retailer (DR) is forecasting its next year's sales and profits to renew its loans from its bank. It is projecting three scenarios an optimistic
Dominant Retailer (DR) is forecasting its next year's sales and profits to renew its loans from its bank. It is projecting three scenarios an optimistic scenario where sales are high and costs are low, a most likely scenario of sales and costs, and a pessimistic scenario where sales are low and costs are high. Note that Profits = Sales - Variable Costs - Fixed Costs. The most likely scenario has a probability of 60%, and both the optimistic and pessimistic scenarios have a probability of 20%. The most likely forecast of sales is $750,000 with optimistic sales being 25% higher and pessimistic sales being 30% lower. Variable costs as a percentage of sales are projected at 35% if most likely, 30% if optimistic, and 42% if pessimistic. Fixed costs are projected at $80,000 if most likely, $75,000 if optimistic, and $90,000 if pessimistic. What is DR's expected Profits using these three scenarios?
what is the standard deviation of the expected profits given these three scenarios?
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